Unraveling antitrust developments: Argentina's landmark beer industry case

Introduction

The National Court of Appeals in Federal Civil and Commercial Matters issued a significant decision in the Compañía Industrial Cervecera S.A. et al. v. Estado Nacional case (11 April 2023). The case involved several fundamental antitrust issues, some of which lacked clear domestic precedents.

The court rejected an appeal filed by several parties against a 2021 resolution of the Secretary of Commerce that imposed a fine of 150ARS million (equivalent to approximately USD350,000) against defendant Cervecería y Maltería Quilmes S.A. (CMQ) and prohibited several of its vertical distribution and marketing practices.

The court affirmed the conclusion of the Secretary of Commerce that CMQ, which is the leading beer producer in Argentina, abused its dominant position in the market. This abuse included:

1. Contracts with “on premise” retailers (such as bars and restaurants) that required them to exclusively sell CMQ-brand beers in exchange for advertising, equipment, and special discounts;
2. Special discounts and promotions for “off premise” retailers (such as supermarkets) in exchange for exclusive shelf space; and
3. Free deliveries of refrigerators with the logos of CMQ-brand beers to “on premise” and “off premise” retailers under the condition that no other refrigerators be used.

Although general prohibitions of specific types of clauses should not be inferred from this case, it is still a significant milestone in the development of precedents on vertical restraints under Argentine law.

The relevant market in a regional context

In its original investigation, the National Commission for the Defense of Competition (CNDC as per its acronym in Spanish) defined the relevant market (for purposes of determining whether CMQ had a dominant position) as the national production and distribution of beer, thus excluding other alcoholic drinks like wine given the weak substitution by customers between these products.

This market generally has high levels of concentration in Latin America, which has drawn antitrust scrutiny across the region. In Argentina alone, it has already been the subject matter of multiple decisions by the antitrust authorities related to acquisitions, the disposal of assets as a consequence of such acquisitions, and other restrictive practices. Relevant foreign cases cited by the Secretary of Commerce in its 2021 resolution include:

1. A 2008 settlement between Chile’s Fiscalía Nacional Económica and CCU (the country’s dominant beer producer);
2. A USD180 million fine imposed by Brazil’s CADE on AmBev; and
3. An ongoing investigation by Colombia’s Superintendency of Industry and Commerce into AmBev-controlled Bavaria & Cía. S.C.A.

Notably, the Secretary of Commerce cited these cases as support for the CNDC’s definition of the relevant market, as well as its own legal analysis of exclusivity clauses and other vertical restraints used by companies with a dominant market position, as detailed below.

CMQ’s dominant market position

Article 5 of the Argentine Antitrust Law (Law 27,442, hereinafter AAL) stipulates that a company enjoys a “dominant position” in a given market when it has a monopoly or lack of effective competition as determined by the antitrust authorities. In this case, the antitrust authorities and the court also considered the following economic factors when determining that CMQ enjoyed a dominant market position:

1. CMQ’s share of the relevant market, which ranged between 60% and 80% during the period in question;
2. The level of concentration in the industry as a whole; and
3. Barriers to entry into the relevant market, particularly the difficulties a rival might experience when trying to replicate the dominant party’s business model.

CMQ’s abuse of its dominant market position

The fines imposed on CMQ were based on the existence of an abuse of their dominant position, which is punishable under Article 1 of the AAL. Although Argentine antitrust law is generally based on the EU model, it contains some significant differences in areas such as restraints of competition and abuse of a dominant position. Under Argentine law, it is debatable whether abuses of dominant position includes both exclusionary (excluding or removing competitors from the market) and exploitative (increasing profits by exploiting market power) practices. It could be argued that exclusionary practices should be categorized, under Article 1 of the AAL, as unilateral restraints of competition. In this case, both the antitrust authorities and the court took the position that exclusionary practices by a dominant firm should be categorized and analyzed as possible abuse of a dominant position, tending to follow the practice of European authorities rather than the wording of Argentine statutes.

Vertical restraints

Argentine case law has not clearly determined the boundaries of illegal vertical restraints, which are also undefined in statute. Although neither the antitrust authorities nor the court set out clear and general standards for the evaluation of vertical restraints through this case, they did provide some broad statements about restrictions that may be considered illegal if imposed by a dominant firm.

The fact that such restrictions impose higher entry and expansion costs for potential and actual competitors was considered to be a defining element of a violation by a dominant firm. It is also interesting to mention that both the judgment of the court, and the decision of the antitrust agency, refused to justify a restrictive vertical practice by the fact that similar practices are followed by smaller competitors. The court upheld the general prohibition that the Secretary of Commerce placed on CMQ’s vertical restraints on marketing channels, and it also considered the following practices to be unduly exclusionary:

1. Exclusivity clauses for the sale of CMQ’s products;
2. Clauses or practices requiring vendors to give priority to CMQ’s products;
3. Clauses or practices requiring the elimination of competitors from menus and other offerings by retailers or vendors;
4. Limits on the exhibition or sale of competitors’ products on supermarket shelves; and
5. Restrictions on the use of refrigerators installed by “on premise” and “off premise” retailers for competing products.

Implications

As mentioned above, general prohibitions on specific types of clauses should not be inferred from this case, and it should be taken in context. The decisions of the antitrust authorities and the court were heavily influenced by the strong and durable dominant position occupied by CMQ, which, like similarly dominant beer companies throughout Latin America, had already been subject to multiple antitrust investigations. In addition, the vertical restraints in this case were not isolated but rather part of a complex, protracted, and broad plan to place obstacles on the expansion of competitors. With such caveats, the case is a significant milestone in the development of precedents on vertical restraints under Argentine law, and it provides valuable insights into how the CNDC approaches such cases.